Proceedings of the Special Senate Committee on
the Cape Breton
Development Corporation
Issue 3 - Evidence - Morning Session
OTTAWA, Monday, June 3, 1996
The Special Senate Committee on the Cape Breton Development Corporation met this day, at 11:00 a.m., to continue its study on the annual report and corporate plan of the Cape Breton Development Corporation and related matters.
Senator Bill Rompkey (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, I call the meeting to order. I welcome two witnesses from the Office of the Auditor General: Mr. Bill Radburn, the Assistant Auditor General, Audit Operation; and Mr. John O'Brien, Principal, Audit Operation.
Gentlemen, welcome to our committee.
We have received a note from the Cape Breton Development Corporation:
As per our discussion, I am forwarding to your attention the following documents:
1. The Special Examination Report dated August 28, 1992...
2. The Draft Interim Financial Statements dated October 31, 1995...
We have both of those. Members of the committee have received them and are in the process of making themselves familiar with them. We would appreciate this morning if you could give us, jointly or separately, a report on your observations with respect to the report. Then we will get into some questions.
Please proceed.
Mr. Bill Radburn, Assistant Auditor General, Audit Operation, Office of the Auditor General: Mr. Chairman, we received your invitation late on Friday. We were both out of town. There was not enough time to prepare and distribute copies of an opening statement. However, I do have a few comments, with your permission, to outline our audit responsibilities.
The Office of the Auditor General became the auditor of the corporation beginning with the fiscal year ending March 31, 1989.
The audit work we carry out in Crown corporations is governed by the provisions of the Financial Administration Act, rather than the Auditor General Act. The Financial Administration Act calls for an annual audit, as well as a periodic special examination. I would like to briefly outline what is encompassed by both of these types of audit.
First, the annual audit. It is very similar to a traditional audit of the financial statements of a corporation in the private sector, but is broader in its scope and reporting. It consists of three elements: first, an opinion on the fair presentation of the corporation's financial statements; second, an opinion on specified authorities; and third, a provision for calling attention to any other matter falling within the scope of the examination which, in the auditor's view, should be brought to the attention of Parliament.
Our annual audit for the year ending March 31, 1996 is still under way, and we expect it to be finalized within the next two weeks.
The special examination is a kind of value-for-money audit, required to be carried out at least once every five years. It is much broader than the annual audit, dealing with matters relating to the safeguarding and controlling of assets, the economic and efficient use of resources, and the effectiveness of the corporation's operations. Under the Financial Administration Act, these special examinations are reported to the board of directors and generally are not public.
The last special examination of the corporation was reported to the board of directors in December 1992, and the next one is scheduled to begin this fall.
Before concluding, Mr. Chairman, I would point out that the chairman and then acting president, Mr. Shannon, asked our office to carry out an audit of the corporation's financial statements for the seven-month period ending October 31, 1995. We accepted his request, but because changes were under way regarding the corporation's plans, these financial statements were never finalized and approved by the board of directors. Therefore, we have not issued an audit report on them.
As he indicated when he testified last Monday night, we are rolling the information forward for the normal fiscal year-end of March 31, 1996.
Mr. Chairman, that concludes my opening comments. We understand the corporation has released to your committee its October 1995 financial statements and the 1992 special examination. Therefore, Mr. O'Brien and I will try to respond to any questions you may have on the audit areas in which we have been involved.
Senator MacEachen: Mr. Chairman, I have a question with respect to the request made by Mr. Shannon to the Auditor General's office to carry out an audit for the seven-month period ending October 31, 1995. What is meant by saying that these financial statements were never finalized and approved by the board? Is it because they were not approved by the board that an audit report was not issued, or is it because the Auditor General's office was unable to complete its work? It is not clear from the statement.
Mr. Radburn: At the time, the situation at the corporation was very dynamic. There were many proposals coming forward. We had completed our work. Were it not for the fact that public hearings were pending, as well as other matters, we would have completed and issued the audit report. However, because factors were affecting the matters reflected in the financial statements, time passed and we never had a chance to finalize it. Had the board approved the statement at that time, we would have issued the audit report.
Senator MacEachen: Is it true to say that the report was not issued because the board of directors did not approve?
Mr. Radburn: I believe it was a situation where the board was witnessing the same events which were transpiring around it and felt more comfortable perceiving the effect of those events before approving the financial statements. Because they did not approve it, we did not issue our audit report.
Senator MacEachen: Mr. Chairman, I understood that the purpose of the audit or the request for the audit was to get a snapshot of the situation when Mr. Shannon became chairman. It would provide the new chairman and the board of directors with an authoritative review of the situation as of that date.
Mr. Radburn: That is correct. Indeed, the financial statements that you have before you provided that snapshot. The only difference is there was no audit report associated with it.
Senator MacEachen: By whom were the financial statements provided?
Mr. Radburn: The financial statements are the responsibility of management. They prepared them. We were prepared to issue an audit report on them, except that, as I said, other events were unfolding. However, the statements you have before you reflected a snapshot as at October 1.
Senator MacEachen: A snapshot that the Auditor General's office would find reliable and authoritative?
Mr. Radburn: Yes, sir. We were prepared to issue an audit report had other events not transpired.
Senator MacEachen: What were these events which were holding it up?
Mr. Radburn: The one major event was the fact that the corporate planning information that had been submitted had not yet been approved by the government. We felt a bit uncomfortable, until the government approved the corporate plan, in issuing an audit report without that level of authority for some of the actions the corporation was planning. That was certainly one event. Then after that, there were decisions to be made regarding public hearings and several other matters.
Mr. John O'Brien, Principal, Audit Operation, Office of the Auditor General: Mr. Chairman, one of the things we are considering here is the valuation of the assets. The value of the assets depends very much on what the anticipated future plans of the corporation are. Until the plan has been completed, approved and accepted, it is very hard to determine what a reasonable valuation of those assets is. The plan that was finally approved in May of this year is somewhat different from the plan that the corporation was putting forward, which was being discussed by the board and would have been one of the bases upon which we would have looked at the valuation back in October.
So those events were changing. We knew they were changing, and, in essence, we would have been presupposing what the government would approve for this corporation had we issued an audit report that was based on assumptions and information in a plan that had not been approved and accepted by the government.
Senator MacEachen: In the asset evaluation, how do you approach the evaluation of the coal mines, such as Phalen and Prince? Do you put a value on them?
Mr. O'Brien: In the first instance, it is a cost basis of accounting, so it is the accumulated costs of the mines. Then you look at the use that those assets will have and the expectations that management has for their future use. For example, if assets do not have a future use or are not expected to generate future cash flows, then management should be writing those assets down to a level of future cash flows that can be expected to be received.
Senator MacEachen: Is there any asset valuation on the coal in the Donkin mine, for example? How do you treat that? Is it a nil asset?
Mr. O'Brien: The coal in the ground is basically valued as a free asset. The assets on the balance sheet are the costs that have been expended by the corporation, those that are anticipated, and that have future value to help extract the coal. However, if the coal is still in the ground, it has no value for the purpose of accounting.
Senator MacEachen: However, the so-called pillars have an evaluation.
Senator Murray: They wrote them all out a few years ago.
Mr. O'Brien: All the costs on Donkin were written off years ago.
Senator MacEachen: We have had testimony on the five-year plan of the corporation. We have had projections about sales, production, earnings, pension costs, and so on. Can you be of any assistance to us in evaluating, or reaching a conclusion on, the soundness and the reliability of this five-year corporate plan?
To put it another way, if the question I have asked is not really within your purview or not capable of an answer from your point of view, can you give us any criteria or guidelines we ought to use in assessing the reliability of that corporate plan?
Mr. Radburn: I think you have presupposed our response. We do not audit the plan. Any plan has within it a number of assumptions and calculations which we have not reviewed; therefore, we cannot really comment on the reliability of the plan, other than to observe that the corporation's management is responsible and they have had a number of public hearings. A number of organizations have had an opportunity to see the plan and comment on it. As a result of that, some changes were made, and we now have a plan that has been approved by the government.
In terms of criteria, I believe you have already asked corporate management for backup for those figures, and I support the committee in getting that backup because all of them are based on assumptions and expectations with respect to the future. I think the committee should be aware of what those assumptions and backup figures are.
Senator MacEachen: I recall that we did ask for backup information, but it was not clear in my mind as to what that would consist of. What type of backup information ought the committee to look at, in your opinion?
Mr. Radburn: If I might make some suggestions, Mr. Chairman, the projections should include sales increases. You would, I suspect, also want to know to whom those sales would be made and in what volumes, and perhaps an average price. There are certain expenditures with respect to the actual development and production. I think you would want backup on those costs, as well as what assumptions are built into them, what levels of overtime, what levels of absenteeism. Those would be the suggestions that come to mind quickly.
Senator MacEachen: I find those suggestions quite helpful. Would you consider adding to them on reflection and providing the committee with a list of things to look for?
Mr. Radburn: If that is a request of the committee, we would be happy to do so.
The Chairman: We would make it a request of the committee, but we would ask you to do it as quickly as you can because we are running against the clock. We want to get as comprehensive a report as possible out before too long, certainly before the end of the month. That is our mandate. We would ask you to be as rapid in your response as you can be.
Senator MacEachen: The government had this corporate plan as presented by management. Presumably, it was considered by Treasury Board, and cabinet or a cabinet committee. Would the Auditor General's office be asked to, or did it, participate in the evaluation of that plan?
Mr. Radburn: We were not asked to, and did not, participate in the evaluation of the plan. Our interest in the plan is to review those elements in the plan that would affect the corporation's financial statements, such as Mr. O'Brien indicated: the degree of activity that the corporation is planning; and the fixed assets that will be continued in use versus those that may not be. We would review the material with a view to ensuring that the financial statements reflect the proposals in the plan and ultimately the approval of the plan.
Senator MacEachen: In view of the fact that you have acted as auditor for seven years now, would you have some signals that you could convey to those examining the plan that might be helpful in its evaluation?
Mr. Radburn: Our capacity as auditors is to review information which is essential for giving an opinion on the financial statements.
Senator MacEachen: So you are totally retrospective in your outlook?
Mr. Radburn: Primarily. The nature of the special examination also includes a look to the future in terms of the capabilities of the corporation to deal with issues with which they are faced. Therefore, in the special examination, there is an element of ensuring that the corporation is well prepared to deal with issues in the coming years. However, we did not, in either of those capacities, review or evaluate the reliability of the corporate planning.
Senator Murray: Thank you, Mr. Radburn and Mr. O'Brien, for coming on such short notice. This may be the committee's best, if not its only, opportunity to obtain a truly independent and expert overview of some of the issues we have been discussing here.
Have either or both of you been involved personally for seven years in the Devco file?
Mr. Radburn: For the first four years, we contracted the audit to a private accounting firm which had been involved in previous years, for the sake of continuity and for us gaining knowledge. Our direct involvement has been subsequent to 1993.
Senator Murray: The 1992 special examination, however, does bear the signature of the Auditor General himself, Mr. Desautels.
Mr. Radburn: That is correct. Under the Financial Administration Act, whoever is the auditor is also, virtually automatically, the examiner. We chose, as an office, to do the special examination, even though we had previously, including that year, contracted out the annual audit.
Senator Murray: So the special examination was your work?
Mr. Radburn: Yes, sir.
Senator Murray: I heard what you told Senator MacEachen, the fact that you do not truly review the corporate plan, but that you do review all those aspects which would have an impact on the corporation's financial statement. That would be, I would think, most of the elements of the corporate plan.
In any case, I have your report here, as we all have, I think. This was carried out in the period 1991-92 in the context of Devco's corporate plan to become financially self-sufficient by April 1, 1995. You attached to the plan the examination criteria which were used. There were some 26 items you examined as criteria for surveying the corporation's efficiency and effectiveness and its systems and practices under five headings: Mining Operations, Environment, Marketing, Human Resources, and Corporate.
In the report, Mr. Desautels points out that the corporation's corporate plan calls for it to make the transition to become financially self-sufficient by April 1, 1995. It says:
The Corporation is challenged in the marketplace by aggressive national and international competition, as well as by legislation requiring better protection for the environment in its operations and reduced sulphur emissions by users of its products.
The report then says:
The Corporation is aggressively responding to these challenges. To date, significant efforts have been made to downsize its operations, through major changes to its organization, personnel and operations. It has done so while shifting the emphasis to a marketing perspective, broadening its customer base and increasing sales in the export market.
Then, by way of opinion, the Auditor General says:
In our opinion...there is reasonable assurance that there are no significant deficiencies in the systems and practices examined.
Except as noted below.
They list four problems: the first, having to do with better identification of the coal reserves for Prince; the second, the need to resolve environmental risks and exposures; the third, the accident rate; and the fourth, absenteeism.
Subject to those four problems that need to be resolved, the view of the Auditor General is there were no significant deficiencies in the systems and practices examined. I conclude from that that in the view of the Auditor General, looking ahead, the corporate plan as of 1922 was soundly based and achievable. Is that conclusion not justified by this report?
Mr. Radburn: I would make a distinction, senator, between looking at their planning in accordance with the criteria that are stated and drawing an audit or a professional conclusion on the soundness of their plan. We looked at their planning process and felt that they had identified alternatives, opportunities, and so on. I think that management, at that time, came up with a plan that we did not independently and separately assess and conclude on, but we reviewed the planning process and assessed the capability of management in preparing the plans. That is a partial answer to your question, senator.
Senator Murray: The key objective was that the company was to become financially self-sufficient by April 1, 1995. That is the bottom line of their financial statement. Surely, if, in examining the systems, the economy, the efficiency and the effectiveness of the company, you had found that according to the 26 criteria you have listed, it was unlikely that they would be able to achieve their stated objective, you would have said so; would you not?
Mr. Radburn: I believe that is correct, senator. We did indicate that they were responding to the challenges you outlined earlier, but at that point they had not fully addressed them.
Senator Murray: The corporate plan is updated every year, as I understand it, so that we have a rolling five-year plan.
Mr. Radburn: That is correct.
Senator Murray: Have you seen the latest five-year plan to which Senator MacEachen referred, the one approved by the government last month?
Mr. Radburn: I have a copy of the summary of the plan.
Senator Murray: You have eye-balled it, but you have not examined it in light of your responsibilities?
Mr. Radburn: We have been provided a copy in the context of our annual audit.
Senator Murray: Either you or Mr. O'Brien said a few minutes ago, quite correctly, that the corporate plan for the next five years, which was ultimately approved last month, is quite different from the plan that you had in front of you when you were doing your 1995 report.
Mr. Radburn: That is correct.
Senator Murray: In your 1995 report you say:
During this interim period, management developed a plan which identifies a requirement for significant corporate restructuring in order to achieve its corporate goal. The restructuring plan received formal approval from the Board of Directors on November 20, 1995. The plan includes the scale down of certain operations and a workforce reduction of approximately 800 employees over the next four years.
Did you come to a conclusion about that plan in terms of whether it would achieve the objective of financial self- sufficiency?
Mr. Radburn: We were presented with a series of plans and options. It seemed to be the choice of management and the board of directors to go ahead with one of those alternatives. As I mentioned before, we did not assess the plan in terms of whether it was reliable. We did not audit the backup to it. We took that as management's direction for the future and tried to reflect what was in that plan and the best option in the financial statements at that point.
Subsequent to that, other factors have caused changes. We have a plan put forward by management, approved by the board and approved by the government that is the plan that they are authorized to fulfil.
Senator Murray: One of the other factors is $79 million from the Government of Canada. Is that the main difference between the two plans?
Mr. Radburn: Between the two-time periods, the second plan incorporated a government endorsement to provide a loan of up to $79 million. That was not confirmed for the October period.
Senator Murray: The original plan envisaged phasing down of the Prince colliery, for all intents and purposes getting out of the export markets and supplying Nova Scotia Power. The second plan indicates that they could produce and sell, and make money on selling, 3 million tonnes more over the five-year period. Among the criteria is the marketing effort.
I presume you have satisfied yourselves in the earlier study, and you would do so again, as to the authenticity of these market possibilities and projections. I presume you have also looked at how much money they are losing, if they are losing money, on the export markets. Have you done that?
Mr. Radburn: In the special examination, we looked at mining operations and marketing. At that time, management of the day was expanding sales in the export market. Things looked promising at that time.
Senator Murray: The 1992 report, which dealt with 1991 to 1992, seems quite at odds with Mr. Shannon's conclusions as to the management, the controls and so on that were in place, in particular as they related to the budgeting process. I want to put some of Mr. Shannon's statements on the record and ask you to comment on them.
On May 27, he put some charts before us. He said:
The black or the dark line is the budget by the month from April of 1991 through to June of 1995. The red line is what was achieved. As you can see from the chart, there was not one month during that period that they made budget in development at the Phalen mine.
A bit later, Senator MacEachen says:
As I saw it, in all cases, the realization was less than what was planned.
Mr. Shannon: In actual work, yes, sir. However, when it came to spending money, it was just the opposite. When they were talking about metres, they were under budget, and when they were talking about spending money, they were over budget -- just the opposite to what it should have been.
Senator MacEachen: That went on from 1991?
Mr. Shannon: Yes, sir....We are not really making budget.
What is beginning to happen here is that we are starting to get concerned, as we are looking at all this information, about the quality of the budgeting process.
A bit later, Mr. Shannon said:
We lost about $2 million selling coal to the Nova Scotia Power Corporation, and we lost about $23 million selling coal offshore in the export market.
A bit later, he said:
That tells me that there is obviously something wrong. The reason I went through the figures with you is because it was a budget of convenience, in my view, developed to come to Ottawa to convince the people in Ottawa that we were going to make money this year.
And a bit later, he said:
Yes. To conclude, after you went through that process, you could not have a lot of confidence in either the business plan or the budgeting process.
That testimony seems to be quite at odds, Mr. Radburn and Mr. O'Brien, with your findings for the same period in the 1992 report and even in the 1995 report.
Mr. Radburn: The comments of Mr. Shannon indicate a concern that he had with the budgeting process. I think the figures he presented were accurate, in that there was a difference between actual and budget. I am not sure whether it was the budget that was inaccurate or the inability of management, over time, to meet the budget. Personally, I think it is probably a good approach to have a budget that might be a bit of a stretch, which, presumably, encourages people to do as well as they can. However, as everyone around this table well knows, with respect to the actual mining operations, there have been a number of setbacks which were unpredictable and have caused shortfalls in both development and actual production. It is hard to predict when those things will happen and the extent of delays that will result.
In a number of cases, there has been a tradition of falling behind the budgeted amounts.
Further examples that I believe came out were with respect to the percentages of absenteeism and of overtime. Over periods of time, various managements have tried to bring those percentages down.
Senator Murray: What he said is this:
I think it would be fair to say that the company had a lot of holes in it. There were not many controls.
That was not your finding. I am sure you look at the controls that are in place when you are auditing a Crown corporation.
Mr. Radburn: Yes, we do. We do that as part of our annual audit. I believe Mr. Shannon may have been exaggerating the situation with respect to weaknesses in controls.
In earlier reports, we have reported to the corporation that, in some areas, controls need to be strengthened.
With respect to his actual statement on Monday night, I would call upon John O'Brien to give some examples of the kind of work we do as part of our annual audit.
Mr. O'Brien: In terms of our annual audit, we look primarily at the controls that help us render an audit opinion. In the first instance, it is management's responsibility to operate a system of internal control. What we are looking at is those controls that allow us to determine whether the financial statements are materially misstated.
I believe that one of the examples given Monday night had to do with the same individual being able to initiate and receive goods. My understanding is that that is correct. However, it is also my understanding that there are password controls over the system, so not anyone can walk into the system, for example. Any purchase up to $50,000 requires the approval of both the individual and their supervisor. Any purchase above $50,000 requires three approvals. Purchases above $250,000 require the approval of the board.
As part of our work, the internal audit department in our organization conducts regular inventory counts. We check to see if there is any variation between what the books show and what our physical inspection shows. We, and the internal audit department, follow up on that. There is regular reporting of the use of materials and expenditures. The site controllers review those on a monthly basis; they are responsible for highlighting any variances from what is expected. There are reviews of budgets.
From our perspective, in terms of rendering an audit opinion, we were able to identify controls upon which we could rely.
Senator Murray: In the 1995 report, in talking about pensions, you say that an actuarial evaluation of the corporation's non-contributory pension plan as of October 31, 1995 indicated an unfunded liability of $55.3 million. You also find that an actuarial valuation of the contributory pension plan indicated a surplus of $4.5 million.
There has been a discussion here, something of an argument, I suppose, about the so-called social costs. We go back to 1968 and see the downsizing and early retirement pensions that had to be paid. Was it in 1982 that they finally got a compulsory contributory pension plan?
Mr. O'Brien: That is correct.
Senator Murray: Employees hired prior to that date are part of a non-contributory pension plan, which has been pointed out, that now has quite an unfunded liability.
I do not know whether I can elicit an opinion from you on this matter, but I will try. When Mr. Kent was here and outlined the history, he indicated that the old company had not had pensions. He said:
... the situation in the beginning of the 1970s was that all that retiring miners had to look forward to from age 65 was the Canada Pension Plan, which in the early 1970s was very small. We did not introduce a rich pension plan, but I think it is fair to say that it made a great difference to the social environment of Cape Breton. I always argued that most of that pension cost was not really a part of the Devco deficit. The pension --
I believe that should be "pensioned" --
-- miners worked mostly for DOSCO --
The predecessor of the private-sector company.
-- which had make made no provision for them. A down-sized industry fulfilling social obligations to former employees of the industry is in fact carrying a burden from the past, not from its present operations. However, I must say that the Department of Finance never agreed with that view. They preferred that the Devco operation look expensive.
Of course I would not ask you to comment on the motivations of the Department of Finance, but I think it is fair to ask you how much of those liabilities belong on the balance sheet of Devco now.
Mr. Radburn: We believe that these financial statements reflect the assets, obligations, and results of the operations of Devco. There might be an argument made that there is a government responsibility for predecessor corporation obligations, but at this point in time that obligation rests with Devco and is properly reflected in the financial statements. Whether it should be there or not gets us beyond the realm of a fair presentation of financial statements and into a broader discussion.
Senator Murray: It does. For a long time now, the Auditor General has taken a much broader view of his role. I think the statute permits and even encourages that. Do you know of any similar situation in Crown corporations that you audit?
Mr. Radburn: Yes, there is another somewhat similar situation. The nature of the obligation is not referred to as social costs but environmental obligations. In the case of Atomic Energy Commission of Canada, we have had a reservation of opinion on the financial statement because they have not recorded the environmental obligations that exist. We have a case there. They would make the argument, as I believe some witnesses have, that the responsibility rests with the government. The difficulty there is to have the government agree that it is their responsibility.
Senator Murray: Definitely, yes.
Mr. Radburn: I think there is a parallel case in that example.
Senator Murray: I do not know the background of the AECL case, but I wonder if the subject matter is one where the Auditor General should take a further view of his responsibilities and look into and comment on what portion of those costs would be properly assumed by the government.
Mr. Radburn: We have not done that in this case, nor in the other case I mentioned. Ultimately, it is a Government of Canada responsibility. Whether it is the corporation or the government, there is an obligation there, and we see Crown corporations as part of overall government. I suppose the responsibility could be measured and split. We have not done that because we believe, first and foremost, it is Devco which is looked to to make the payments.
Senator MacEachen: I am interested in Senator Murray's line of questioning and the response which has been made. I will put on the record one paragraph from Mr. Shannon's testimony, which appears to be somewhat outrageous on the surface. Perhaps underground, it is not so outrageous.
Mr. Shannon had been referred to an investigation conducted in the mine. He said:
To give you an indication of some of the findings of the investigation, at the Victoria Junction wash plant we had 3,665 pairs of gloves and 121 employees, or 29 pairs of gloves per employee. At the Phalen colliery we had 11,000 pairs of gloves, or 13 pairs per employee. On February 28, the Victoria Junction wash plant was idle. However, $1,000 worth of boots was issued by warehouse personnel on that day. In 1995, 252 pairs of burner pants were issued. A maximum of 30 people perform work which would require that type of pants.
What comment do you have to make? Is your system capable or was it ever intended to pick up what one might say are discrepancies of that type? Is your methodology not refined enough or you are not expected to pick it up? Is this solely a management function beyond the audit?
Mr. Radburn: I will give an initial response and ask Mr. O'Brien to add further comments.
As part of our annual audit, we do in fact check controls. We do inventory counts. We compare the inventory on hand with the corporate records. And although from time to time we may have found differences, we have resolved those differences and have not found the situations implied by the numbers that have been quoted here. I will ask Mr. O'Brien to comment.
Mr. O'Brien: There are two things I would like to say. First, our responsibility is to render an opinion on the financial statements, and we must look at the concept of materiality and what amounts matter in terms of affecting fair presentation.
Second, in this particular instance, going back to what I mentioned earlier, my understanding is that an employee in some manner obtained access to the password of his supervisor or manager. Therefore, when the system is relying on segregation of duty and relying on a manager or supervisor to approve, and that individual is not in a position to make that approval because someone has their password, then the system will start to break down. There is no question about that. However, that is an indication of an individual breakdown.
Clearly, any system is designed in a way that managers retain their signing authority and do not provide it to someone who is not authorized to have it. That is my understanding of those specific instances that were mentioned.
Senator MacEachen: Is a password a computer entry of some kind?
Mr. O'Brien: That is my understanding, senator.
Senator MacEachen: The password got into other hands, by accident or some other way?
Mr. O'Brien: That is my understanding, senator.
Senator MacEachen: This is the result?
Mr. O'Brien: That is correct. That is my understanding of the situation, yes.
Senator Stanbury: I will take a run at one area which we have not talked about yet. I believe there are seven members of the board of directors of the corporation in this particular situation. They are appointed by the Governor in Council.
I appreciate that this may not be something that you feel you can comment upon, but do you make any kind of assessment concerning the effectiveness of the corporate governance of the board of directors in a Crown corporation?
Mr. Radburn: At the general level, we report to the board of directors, not on them. Their responsibilities are set out in the Financial Administration Act. We do not assess whether they have met their objectives. We attend audit committee meetings, so we have insight into the workings of at least one of the committees, if not the full board. The audit committee requests and is given information, and there is discussion on that information.
However, I cannot comment on the effectiveness, or otherwise, of the board.
Senator Stanbury: Do you know, offhand, how often the board meets?
Mr. Radburn: We meet with the audit committee to present an audit plan and we meet with the audit committee to present the results of the audit. They would probably meet four to six times a year.
Senator Stanbury: And the audit committee, as far as you are aware, meets just twice in the year, is that right?
Mr. Radburn: They may meet as frequently as the board, but we have the occasion to attend meetings both when we present our audit plan as well as when we present the results of the audit. They may meet more frequently, but we meet with them twice a year.
Senator Stanbury: I am concerned that there seems to be a lack of monitoring of the operation of the company. We receive budgets which are well out of line with the factual operation. I have had enough experience with budgets to know that sometimes management and boards of directors quite happily set budgets which are a stretch, as you say.
However, to have that happen year after year -- surely, somewhere along the line, they must develop some credibility. You would think that they would want their budgets to be accurate once in a while.
I have not looked at it with any great detail, but it seems to me that that problem has been the case year after year. Is it the board of directors' responsibility to pick up that trend and do something about it? Where does the responsibility lie?
Mr. Radburn: The first responsibility is for management to prepare budgets and to have good discussions at board meetings. Over the years, there have been different management teams involved. They reflect different management styles and approaches. More recently, Mr. Shannon has become involved. He has looked at the recent past and has put forward some fairly drastic proposals. One is optimistic that the plans currently approved by the government will be fulfilled, but it is hard to predict the future.
Senator Stanbury: Do you know whether the union has any observer status or membership on the board?
Mr. Radburn: I cannot answer that. My recollection with respect to all of the audit committee meetings that we have attended is that there has not been a union representative present.
Mr. Chairman: Do you have any opinion on whether that is a good or a bad thing?
Mr. Radburn: Officially, no. That is a Governor in Council role.
Senator Stanbury: Do you have any opinion on the size of the board? A seven-member board of directors seems to be small for that size of corporation. Do you have any criteria by which you can measure it?
Mr. Radburn: I do not think it is a question of the number of board members; I think it is a question of the quality of the board members. A board can operate with five or seven members. I think that as the numbers increase, it may tend to be more complex.
In recent years, the government has reduced the number of appointees on boards. In the Auditor General's October 1993 report, we indicated our concern about boards and succession planning -- the fact that on some boards, appointments remain unfilled for rather lengthy periods of time. We thought there might be a board responsibility with respect to succession planning; that is, that they might wish to identify the most suitable people to replace them when their terms are up. I am not sure that corporations have taken that idea to heart. However, in a public report in October 1993, we indicated our feeling that the criterion of competence should be the prime criterion for appointees.
Senator Stanbury: Generally, what is your opinion of the effectiveness of a corporate governance which involves responsibility being split among the board of direct directors, the minister, and anyone else who has a responsibility. I think there are three different bodies that have responsibility in terms of the running of the corporation. There may well be confusion caused by the lack of unity, the oversight, of the corporation.
Mr. Radburn: I am glad that question was raised. We have looked at corporate governance of Crown corporations and reported that we felt that there are many players in the chain of accountability. Each should perhaps look at how they could improve their role.
In a report dated October 1995, we indicated some actions the various players, including management, the board, government and Parliament, might take to improve overall governance and accountability. There are many players. It is a much more complex environment than in the public sector.
Senator Stanbury: It seems, to me, that in this situation, the responsibility has fallen between a number of stools and no one seems to be keeping careful tabs on what is happening with the operations of the company.
Senator Buchanan: Perhaps I can move in another direction, namely, the direction of alternate mines or alternatives to the two mines that presently exist.
Let us go back to the late 1970s, a time when there were great concerns with Devco and the longevity of Devco. The Government of Nova Scotia, the federal government and the Cape Breton Development Corporation, after many meetings, decided that a new mine should be canvassed at that time because the life expectancy of the mines producing at that time were limited. Number 26 was to close sometime within the next decade. However, it did not last that long because of the disastrous fire. That would have meant that the three mines -- one of which is now closed, Lingan, leaving the Phalen, which is located right behind -- would have closed without a new mine to take their place.
At that time, a considerable amount of money was spent looking for a new mine primarily in the harbour seam of the Sydney coal fields in the Donkin area. Quite a few reports were produced by the federal government and by a combination of the provincial government and Devco. I have one of them here.
In those reports, it appeared that, over the next decade, or longer, there would definitely be a new mine required in Cape Breton if Devco were to continue to operate and to provide coal to the ever-expanding requirements of the Nova Scotia Power Corporation.
The decision was made at that time that the Nova Scotia Power Corporation would definitely more very quickly from oil to coal, and it did. It moved from 60-some per cent oil use to generate electricity to 70 per cent coal use, as it is at the present time, with the construction of Lingan 1, 2, 3, 4, the expansion of Point Tupper, followed by the expansion of Trenton and the new coal mine at Point Aconi. The future of this usage was examined in the studies which were conducted then.
The Donkin mine was determined by everyone to be valuable. There was agreement that the best coal of the Sydney coal fields was in the Donkin mine of the harbour seam. Montreal Engineering and Kilborn Engineering were retained to do an engineering analysis of the Donkin mine.
At the time, Devco did not have the funding to pay for the testing. The federal government was not prepared to fund the initial work, so the province of Nova Scotia provided some interim funding to bring in a drill ship from the United States in 1979. We paid for that. The necessary core drillings in the harbour seam at Donkin were done, and the results were excellent. I have the results here. Because I knew the details so well at the time, I need not refresh my memory too much.
In 1981, the federal government repaid the province of Nova Scotia the money it had expended for the drill ship and then decided to proceed with the tunnels for a new Donkin mine. When 26 Colliery closed, that decision was known to have been the right one.
The two tunnels were completed. The site preparation was done. I remember it all very well. I was down in those tunnels. I was there when they were under construction.
The tunnels were flooded, which was the right thing to do if the mine was not to proceed at that time. However, the reason the tunnels were flooded was that no one knew exactly when construction of the mine would proceed, even though those tunnels were right at the coal face. The tunnels have been flooded now for about seven years, or perhaps longer. We have been told by mining engineers who appeared before this committee that the tunnels are in excellent condition; that it would require only a short period of time to pump the water out; and that because the tunnels were flooded, the concrete in them is in excellent condition. If they had not been flooded, the tunnels would have deteriorated.
The reason for spending all of this money on the tunnels was to provide an alternative to the mines that were to close in the near future and to those with a mine expectancy, at that time, of 15 or 20 years, and to supply the requirements of the Nova Scotia Power Corporation, which grew from 1 million tonnes of coal up to 2.8 million tonnes at one time.
I give you that background because I wonder what, if anything, the Office of the Auditor General has done over the last number of years to examine the possibilities, maybe even probabilities, that one or both of the existing mines may close in the next eight to ten years? We have been given estimates of anywhere from 10 to 20 years on the life expectancy of the Phalen and the Prince collieries.
At some point, it becomes uneconomical to continue mining in these coal mines. As the tunnels drive out further under the ocean, transportation times increase for coal and miners. Costs increase until the mine becomes very uneconomical. That is what happened with No. 26 colliery.
There is no question that at some time in the near future, one or both of these mines will close. Which will be first, I do not know.
The other part of this is the "going concern," primarily in respect of Phalen, they talk about in Devco's interim financial statements. As you probably are aware, Phalen is subject to roof collapses and rock and gas outbursts. Therefore, there has been, and continues to be, a growing concern about the economic recovery of coal reserves if these kinds of geological problems continue.
If these problems continue, the life expectancy of the Phalen mine could be reduced from 15 or 20 years to 7 or 8 years. If the economic costs of coal recovery and development rise to a point where the coal cannot be sold, the mine may close. Devco would then be in a serious situation, having one operating coal mine, no alternative to that coal mine, yet still needing to meet the requirements of the Nova Scotia Power Corporation.
Presently, the biggest concern in Cape Breton is the future. Will the coal mining industry shut down sometime within the next five or ten years?
Last year, a major roof-collapse at Phalen colliery necessitated the expenditure of a lot of money. Again, I give much credit to the Phalen colliery miners who literally took pick and shovel to clean up those roof falls. However, it still cost the Cape Breton Development Corporation a lot of money. They had budgeted, for development cost and clean-up of the geological problems, about $30 million. They projected they would need that much money.
Putting all of that in its proper perspective, the biggest concern is the future. In their interim report, the Cape Breton Development Corporation show as their capital assets the net book value of Prince colliery and Phalen colliery. For Donkin-Morien, the value shown is nothing. I suspect the line below, "development project" of some $80 million, reflects the value of Donkin. Is that right?
Mr. O'Brien: That is correct.
Senator Buchanan: Donkin is shown as having already cost $80 million. Actually, it is more than that. If you include the interim money which was spent in 1979-80-81, it would be closer to $100 million.
The costs to complete that Donkin mine, those figures, give me a lot of concern. I have the original costs which were put together. In 1984-85 dollars, production of 1 million tonnes was projected to cost, in round figures, about $160 million. The cost to produce 2 million tonnes would have increased to over $200 million.
But let us use the $160 million amount. No one disputed those figures at the time. If you deduct the $80 million, the cost of bringing a new Donkin mine to 1 million tonnes would be about $80 million in 1984-85 dollars.
I have not done that calculation, but to bring it to 1996 dollars, I was told that you could add probably another $25 million or $30 million -- something like that. If you deduct from that the sale of developmental coal, which we discussed with Devco people last week, and also with Steve Farrell, who is a mining engineer and a very good one, the cost to complete the Donkin mine -- to pump it out and to bring it to a point where you could produce a million tonnes of coal -- would be anywhere from $100 million to $130 million, in 1996 dollars. Yet, the scare tactics that have been used indicate that to complete the Donkin mine would cost up to $500 million, although that was figure was reduced to maybe $400 million.
I have talked to many people in the mining industry -- people who may be associated with the United Mine Workers, and others who are totally independent of the UMW and of Devco -- who have confirmed to me that the $400 million figure is nonsense, someone who has thrown the figure out and is determined that the mine would never be built.
We are left with a figure that was put on the table here last week of anywhere from $100 million to $120 million or $130 million. I am told that with that capital cost amortized over the normal period of time, at normal interest rates, and with the total operating costs of that new mine, coal could be produced for much less than the production costs of Phalen and/or Prince.
Have you taken a look at any of these figures? Have you looked at the cost of completing the Donkin mine? Have you looked at the consequences if there is no alternative to Phalen and/or Prince? Have you looked at what will happen to Devco if Phalen or Prince closes and there is no alternative? The concern in Cape Breton is that Devco will then close, that there will be an orderly shutdown of Devco. God help us if that ever happens.
After having spoken to people like Steve Farrell, Coady Marsh, Bill Shaw, who all know this industry, I have to wonder, if there is no alternative, and if these problems that Phalen has been experiencing continue -- and there is every reason to believe that the geological problems will -- where that will leave the coal industry of Cape Breton.
There are a lot of questions in there. First of all, have you looked at the longevity of these two existing mines? Second, have you looked at the cost of producing coal as they continue to move out under the ocean? Third, have you looked at the cost of completing the new Donkin mine after about $100 million has already been expended?
Mr. Radburn: There are indeed a number of questions that you have raised, many of which go beyond our role as auditors. However, with respect to the costs, as you go further out under the ocean, it is quite clear the cost is higher because of the time it takes to get out there, as well as ventilation and other problems. Costs will go up as they go further under the ocean. Everyone agrees on that.
We have not, in our work, done a feasibility study of opening Donkin. At this hearing, there have been a number of cost figures proposed, over a wide range, from $100 million to $500 million, as you pointed out. What that shows is the need for a feasibility study to know what the costs are. We have not done that. Therefore, we are not in a position to comment on what the costs would be for opening Donkin.
However, as part of the special examination, we did look at the proven and probable coal reserves from the Prince mine. We had an expert assist us at that time, in 1991-92. The information the corporation had was only three years into the future. The advice we had received is they should have that five years out into the future. If you are entering into 20-year contracts, you should know that. We pointed out that knowing only three years out was a significant deficiency, particularly with respect to the quality of the coal in some of the mines. We recommended that they gain further knowledge. That was in the context of the Prince mine, and not Donkin or others.
I support your view that considering the nature of the business that Devco is in, there should be better knowledge of the proven and probable coal reserves as you go out into the future.
We are limited somewhat by management's proposal and the government's acceptance of the five-year plan that deals with Phalen and Prince. Therefore, we are limited to the action plan of the corporation.
As to other things they could or might do, I am not sure we could comment on them.
Mr. O'Brien: As to the valuation of the assets, Phalen, in the books, has about seven more years of expected useful life, in terms of the amortization period. We have looked at that and looked at management's projections and feel comfortable accepting that as a proposal. Clearly, there is risk associated with the Phalen colliery, as is indicated in the October statements. Management recognizes that. That will clearly have an impact on the achievability of the plan.
Senator Buchanan: I am very interested in what you said. Would you recommend to this committee that there should be an independent feasibility study carried out to give us a true cost to bring the new Donkin mine to 1 million tonnes of production, which is the initial amount they had always been considering? So many figures have been thrown out. The other night, the union threw out a figure of a maximum of $100 million. We have had a figure of $120 million. Mining people have given a figure publicly, although not before this committee, of $130 million to $150 million, less the developmental coal, which brings it not too far off the union's figure. However, I have not heard one person give any evidence or information that would even come close to justifying the $400-million figure.
I have spoken to people who know this business well, and they cannot understand why someone is using the $400-million figure, other than to discourage the completion of the Donkin mine. I sincerely believe that is the reason. There is a great difference between $150 million and $400 million.
Mr. Chairman, I hope that one of the recommendations this committee will make is that we get a true figure, within certain parameters, of what the cost will be to complete -- not to build because it is there now -- the Donkin mine.
Let us also get the life expectancy of these mines to continue to produce coal economically, because you get to a point where you are so far out under the ocean that it is uneconomical, particularly if you cannot market it. We heard a figure last week that the life expectancy of Phalen was 25 years. I had never heard that figure before. Previously, I had heard that Phalen could have a life expectancy of maybe 8, 10, even up to 15 years. Prince had the same kind of life expectancy for the economic recovery of coal. The figures they gave us last week were 20 and 25 years. I had never heard such figures before.
I do not expect you to have figures to either contradict or agree with those. However, you said that you were looking at an amortization period of seven years. In their own plan, they do not project more than five years.
Is it any wonder that there are stories in the media, and directly from the Power Corporation, that the Power Corporation may have to start looking for coal from other sources unless it can get some certainty about what will happen with the Cape Breton Development Corporation, keeping in mind that just about every generating plant of the Nova Scotia Power Corporation uses Cape Breton coal?
Would you care to comment on that?
Mr. Radburn: It is difficult for us to comment on that. We are auditors of the financial statements. You are raising issues beyond our role and responsibility.
Senator Buchanan: I realize that, but all of the Auditors General with whom I have dealt over the last 25 years have also looked at what the future holds. They look at the present financial statements and also project into the future.
It is important that someone now look into the future of the mining industry of Cape Breton. Senator MacEachen was the first to bring this up. The task of this committee is to look at the financial situation of Devco. However, the prime responsibility of the committee is to look into the future of the coal mining industry in Cape Breton. In order to do that, you have to look at the feasibility of proceeding with a new mine, as we did in 1979, 1980 and 1981. We actually constructed tunnels, which are now flooded.
Mr. Radburn: There is merit in what you say. The Financial Administration Act requires a five-year corporate plan. Given the nature of Devco's business, there may be merit in having the corporation go out to several five-year periods and to ask "what if" questions such as you are raising. However, the requirement of the act which they are following calls for a five-year plan.
The Chairman: That is an interesting line of questioning and certainly something we can take up when we formulate our report.
Senator Stanbury has raised a question about the composition of the board and the possibility of obtaining biographies.
Senator Stanbury: It is important for us to know who the members of the board are and what their qualifications are.
The Chairman: Senator Murray raised that earlier. Perhaps I could ask the clerk to follow up and ensure that we get full and complete information on the board members. Is that agreed?
Senator Stanbury: It would be helpful as well to know what committees exist. The witnesses this morning talked about the audit committee. Are there other committees? If so, what are their responsibilities?
The Chairman: We will ask the clerk to get that information as well.
Mr. Radburn: Mr. Chairman, the committees of the board, as indicated in last year's annual report, consist of the audit committee, the communications committee, the environment committee and the pension fund investment committee. We do not have before us their roles and responsibilities, but those are the committees of the board.
Senator Anderson: The union representatives who appeared before this committee last week were very concerned about the amount of subcontracting being done at Devco. They stated that union workers could perform 75 per cent of the work that is subcontracted out.
How do you view these claims? Have your audits dealt with the specifics of subcontracting? Has this practice of subcontracting saved Devco money?
Mr. Radburn: I wish I could be more helpful. In a general way, contracting out is an alternative which many corporations are exploring as a way to reduce their costs. We have not looked at the specifics of the agreement for contracting out and cannot comment on the claims of the union without understanding the cost of contracting out versus work being done internally. We would have to do a cost comparison. I must presume that at the time they contracted out, an analysis was done and it was determined to be less costly. However, I do not know that.
Senator Stanbury: Are there any corporate auditors for the company, other than yourselves?
Mr. Radburn: We are the sole auditors of the Cape Breton Development Corporation. Under actual arrangements, we have had assistance provided by one of the public accounting firms. That has continued from their earlier, more direct involvement, but we are the sole auditors.
Senator Murray: I see that in the 1995 statement, Prince colliery assets have been written down by $20 million. At that point, Devco intended to go to a one-shift, part-time operation with Prince. I presume, now that they are going to two shifts year-round, that those assets will have to be written up again.
Mr. O'Brien: As Mr. Radburn indicated earlier, these statements were never issued or finalized. From the point of view of publicly released audited financial statements, they were in fact never written down. They were based upon a plan which assumed one shift and substantially less production than is in the approved corporate plan.
Clearly, management will have to re-evaluate the impact that has had on the valuation of the assets. We will then have to audit what they have done. The short answer is, yes, they will have to reconsider.
Senator Murray: We have two documents before us. One is the 1992 special examination and the other is the draft 1995 report. In fairness, because of the criticism, implicit and explicit, of the previous management by the present management, and of the present management by the unions and others, I do want to ask you one or two questions.
With regard to 1992, you did a study to determine, first, whether the corporation's assets were safeguarded and controlled. I take it from your report that your finding was that the corporation's assets were safeguarded and controlled. Have you any reservation about that? You made four notes: one about absenteeism; one about the accident rate; one about the need to confirm coal reserves; and one about environmental matters. Subject to those, was it your finding that as of that date, the corporation's assets were safeguarded and controlled?
Mr. Radburn: Taking into consideration that the nature of the assets and the highest value deals with the inventories of coal and so on, yes, senator.
Senator Murray: Was it your finding that the financial, human and physical resources of the corporation were managed economically and efficiently?
Mr. Radburn: Subject to the concerns we had with respect to the accident rates and employee absenteeism, yes.
Senator Murray: Was it your finding that the operations of the corporation were carried out effectively?
The Chairman: Excuse me, senator. Just for clarification, I remember the union representative saying that one problem was the basis upon which absenteeism was determined. Do you wish to comment on that? As I recall, they said that even people who were not really in the workforce, due to ill health or other reasons, were classified as absentees and that this increased the real count.
I am sorry, Senator Murray, but I would like clarification.
Mr. Radburn: I do not recall the make-up of absenteeism, other than that the rates seemed very high over time and in comparison with other coal mining operations.
The Chairman: However, you did not investigate the basis upon which absenteeism was determined, did you?
Mr. Radburn: I do not recall.
Senator Murray: In a word, you accept what management has told you on that. You do not go behind it, do you?
Mr. Radburn: I believe we did some work to substantiate the rates. However, I do not recall whether we did work to identify the measurement basis upon which those rates were arrived at. As far as absenteeism and overtime accidents and incidents were concerned, the history concerning the statistics seemed to be above the industry average.
Senator Murray: It has become quite a bone of contention here, as you may have observed.
Was it your conclusion as of 1992 that the operations of the corporation were carried out effectively?
Mr. Radburn: Given that the nature of the operations are to develop and produce coal, and ultimately sell it, they were doing that. A conclusion would be that, yes, the operations were carried out effectively. No significant deficiencies were identified in that area, other than the fact that their knowledge of the proven and probable coal reserves was less than what was deemed appropriate.
Senator Murray: You do an annual audit. You are about halfway or three-quarters of the way through the annual audit for the fiscal year that ended last March. You are almost finished.
Mr. O'Brien: We are almost finished, that is correct.
Senator Murray: As I understand it, you will be undertaking the five-year special examination. The next one will be done next year, is that correct?
Mr. Radburn: It will start this fall.
Senator Murray: You are three-quarters of the way through. Under the Financial Administration Act, you have the responsibility of calling attention to any other matter falling within the scope of the examination that, in the auditor's view, should be brought to the attention of Parliament. I know that your report is not yet finalized. I think we all know what we are discussing here in terms of the management of that corporation.
Is there anything which you believe we, as a parliamentary committee, should know? Is there anything you should flag for us at this point before we undertake to prepare a report?
Mr. Radburn: We have not received the draft financial statements yet and, therefore, have not completed our audit work. I am afraid we are not at the stage at which we can conclude. We need another couple of weeks to do the work.
Senator Murray: The draft you have is as of October 31. You have continued work since then, is that right?
Mr. Radburn: That is correct.
Senator Murray: No doubt there are concerns of detail which will find their way into your annual audit. However, do you have any major concerns to bring to the attention of this committee now? I refer to concerns about systems or concerns with the management of that corporation.
Mr. Radburn: I wish I could be more helpful, Mr. Chairman. With respect to the October draft statements before you, at that time we had no matters to raise under the provisions of the act.
Senator Stanbury: Since the Auditor General took over the auditing of the books -- and I think you said that started about three years ago -- have the two of you been involved personally in the audit?
Mr. Radburn: Mr. O'Brien has been involved personally.
Mr. O'Brien: I have been there for two or three years.
Senator Stanbury: I have had some experience with lack of continuity in audits. In particular, commercial audit firms seem to have that difficulty these days. Do you have any such difficulty? I think it will be important to have a continuity of audit over the next few years as far as Devco is concerned.
Mr. Radburn: In every audit organization, there is some turnover of staff. We do no have full control over it. Some people leave and we want to rotate assignments. However, at the senior level, there has been continuity.
The Chairman: You noted in chapter 10 of your audit of Crown corporations that the governance of Crown corporations is not solely the responsibility of the board of directors and that the active involvement of government and Parliament is also required. What specifically could Parliament do to better monitor the Cape Breton Development Corporation?
Specifically, what is your opinion about having the corporation report on a regular basis, perhaps a biannual basis, to a standing Senate committee for the duration of the corporate plan; and should the unions be invited to report as well?
Mr. Radburn: We indicated in our report that one of the things Parliament and parliamentary committees might be involved with would be to receive, review and use corporate performance information which is included in these reports that are submitted to Parliament. Recently, the corporation has agreed to issue quarterly reports on performance. Once they have decided which indicators and the format of the reporting, I think it might be useful information which this committee might look at to see whether you want to have more hearings with the corporation and other witnesses.
Ultimately, however, I think it is the performance of the corporation, whether it is meeting its targets and objectives, that is of interest to most people. With the corporation providing this information quarterly, starting sometime in the near future, it would be a basis for this committee and other committees to decide the extent to which they wish to be directly involved and hold the corporation accountable.
The Chairman: The question is: Do you think it would be worthwhile for a Senate committee, for example, to be involved on a continuous basis in monitoring?
Senator Stanbury: Would it help?
The Chairman: Yes. In the private sector, the board of directors is, presumably, responsible to the shareholders. Who are the shareholders of a Crown corporation? They are not the department or the minister; they are the taxpayers. Who represents the taxpayers? It is someone here, either in this chamber or in the other place. Is it acceptable, or defensible, that a Senate committee perform the role that shareholders would normally perform in a review capacity?
Mr. Radburn: That is a difficult question to answer in that Crown corporations have been established with a board of directors. Ultimately, it is the board of directors which should be holding management accountable. Perhaps the role might be to monitor the actions of the board and the information provided by the corporation to avoid the danger of getting involved in day-to-day operations.
The Chairman: I see your point.
Senator Stanbury: One of the weaknesses in the discussions this committee has had is that we have not talked to the board of directors. Perhaps that is not for this time. However, it seems to be an important element in the process.
The Chairman: That point is something for us to consider as a committee.
I have one final question on labour-management relations. Do you have any comments to make on some of the main reasons for co-relations between union and management?
Mr. Radburn: I do not think it is our role. In witnessing and reviewing the minutes of your meetings, I think there is a natural opposition between management, which is given direction to reduce the number of people, and unions wishing to maintain as many people as possible. I do not think it is unusual in corporations to see that kind of friction and different perspectives.
The Chairman: How would you compare this particular Crown corporation with other Crown corporations you have audited with respect to union-management relations over a five-year, ten-year or fifteen-year period?
Mr. Radburn: I will answer your question by giving you examples. We are responsible for auditing the Canadian Broadcasting Corporation. In previous years, we audited Canada Post. I think we witness friction and different perspectives in a number of corporations. I would characterize that as not being unusual.
The Chairman: If there are no further questions, I should like to thank you for being with us and for trying to answer our questions within the confines of your mandate.
The committee adjourned.